Skip to content

CA Intermediate · Advanced Accounting · AS 9 Revenue Recognition

Mahalaxmi Traders sells goods to a dealer, Rohit Enterprises, on 28 March 2025 for Rs 8,00,000 (cost Rs 6,00,000). The goods are delivered on 28 March, but the agreement says the buyer may return unsold goods within 60 days, and Mahalaxmi cannot reliably estimate returns. Rohit has not yet sold any of the goods. How should Mahalaxmi treat the transaction in the year ended 31 March 2025 under AS 9?

Mahalaxmi should defer revenue until the 60-day return period lapses or Rohit accepts the goods. AS 9 recognises a sale only when significant risks and rewards of ownership pass to the buyer; with an unquantifiable return right those risks remain with the seller despite delivery.

  1. ARecognise revenue of Rs 8,00,000 as property has been delivered
  2. BRecognise revenue only to the extent of the profit, Rs 2,00,000
  3. CRecognise revenue when the return period lapses or the buyer accepts the goods, as significant risks are not yet transferredCorrect
  4. DRecognise revenue of Rs 6,00,000, being the cost of goods

Explanation

AS 9 requires that significant risks and rewards of ownership are transferred before sale revenue is recognised. Where the buyer has a right to return and returns cannot be reliably estimated, risks are retained by the seller. Revenue is therefore deferred until the return period lapses or the buyer formally accepts. Recognising on delivery alone ignores the retained risk.

Did you get it right without looking?

One question tells you little. A timed set on AS 9 Revenue Recognition shows your real accuracy, how long you take and where you lose marks.

Practise AS 9 Revenue RecognitionFree diagnostic mock

More AS 9 Revenue Recognition questions